Emerging South East Asia: Myanmar Stock Exchange

Myanmar's stock exchange began trading with a single listed company some three months
after it opened in the country's commercial capital Yangon. The Southeast Asian nation's
economy was devastated by nearly 50 years of economic mismanagement under the
military government, which ended direct rule of the country in 2011.The outgoing semi-
civilian government that replaced the junta ushered in numerous economic reforms. One of
them was to launch the Yangon Stock Exchange in December.

THE START UP
"For 50 years there has not been a stock exchange, today is a historic day," said local tycoon
Serge Pun, just before he rang the bell on trading at 11 a.m. (04:30 GMT) inside a renovated
colonial building that once housed the country's central bank.

First Myanmar Investment (FMI), one of Myanmar's largest companies, made the inaugural
listing. The exchange was a "farewell gesture" from President Thein Sein, said Deputy
Finance Minister Maung Thein. The outgoing government had emphasized the stock market
as a way to catch up to more developed countries.

The president will hand over to the government of Aung San Suu Kyi's National League for
Democracy (NLD) in a ceremony on March 30, after the NLD won a landslide electoral
victory in November.

The FMI listing involved no initial public offering, nor did it raise fresh capital. FMI has
transferred shares to list on the YSX that it had already sold to the public through direct
subscription.

FMI shares rose to 31,000 kyat ($25.70) at the open on Friday, the upper limit for trading for
the day after they were listed at 26,000 kyat.

A total volume of 112,845 shares changed hands, for a trading value of 3.498 billion kyat
($2.90 million). FMI's market cap was 727,880 million kyat ($603.55 million).

FMI's sister company, Yoma Strategic Holdings Ltd, is listed in Singapore.

Maung Maung Thein has said previously that Thilawa SEZ Holdings, which controls a new
industrial zone jointly run by the government and a Japanese consortium, would be the next
company to join the exchange, but it is unclear as to when this will happen.

FAILURE TO TAKE OFF

After surging higher in the first week of trading on huge pent-up demand, the main index,
the Myanmar Stock Price Index (MYANPIX), has been on a steady decline:
The result hasnt been pretty: the Myanmar Stock Price Index is down almost 31% on the
year since opening for trading. Daily trading value has dropped from a peak of over 4.94
billion MMK (around $4.1 million USD at the time) in the first week to an average of about
0.105 billion MMK (around $90,000 USD) over the month of August.

While there were spikes in volume and trading value when the first and second companies
were listed, there was no noticeable increase in volume on the latest listing on 26 August
2016. This is a worrying sign but not unexpected given the performance of the first two
companies before it.

CAUSES OF UNDERPERFORMANCE
There are a number of factors at play here to explain the terrible performance of the stock
market so far.

First, every listing on the exchange so far has been a relisting where a company
transferred existing shares to the market. These were not IPOs, and no fresh capital
was raised. Given the lack of liquidity for shareholders before the exchange, existing
shareholders have approached the new Yangon Stock Exchange as an opportunity to
trim previously illiquid positions.
Second, foreign investors are still not allowed to invest in the market. This situation
is expected to change by the end of the year with the passing of the Myanmar
Companies Act, but the capital inflow into Myanmar that has made the local
currency one of the better performing currencies this year (up over 8% YTD), has not
filtered through to the stock market yet.
Third, the stocks were not cheap; in fact they looked downright expensive.
 PRESENT STATUS
A half-century of harsh military rule in this Southeast Asian country of 55 million brought
economic ruin and isolation from the international community and global financial trends.

But Myanmar remains a cornucopia of natural resources, and it is welcoming foreign

investment as one of Asia's last economic frontiers. The former British colony's economic
growth is forecast at 8 percent this year, among the fastest in the region.

Just a week after trading began on the Yangon exchange, a democratically elected
government headed by former political prisoner Aung San Suu Kyi took power. Since then,
the United States has lifted nearly all the economic sanctions it had imposed on the former
military regime, freeing up remittances from abroad which experts say may help fuel the
market.

"We shall see. It's conditional. If our economy prospers, the stock market will also do well,"
said Khin Maung Nyo, an economist and author. For the time being, he advised caution for
"Mr. Average." With the three listed companies mostly trading below their initial price
levels, many investors have fared poorly.

The first stock to be traded, First Myanmar Investment, is owned by real estate tycoon Serge
Pun and is one of the country's biggest public companies. It made its debut at 40,000 kyat a
share ($31 at current exchange rates). On Nov. 11 it finished at 16,000 kyat (about $12),
despite having seen its profit soar in the past year.

"People watch TV and read novels about stock markets and think they can get rich
overnight, but now they are beginning to realize that it's not that easy," said Khin Maung
Nyo.

Many investors blindly follow friends and neighbours into the market and when it tumbles
they "all go over the cliff together," said Zhang of KBZ. The firm's operations chief, Jonathan
Lin, says he suspects some first consult fortune tellers. After all, this is a country where past
leaders made crucial political decisions only after seeing their favourite soothsayers.

KBZ and four other brokerage firms handle trading electronically. That is one reason for the
lack of activity on the trading floor of the 1939, neo-classical Yangon Stock Exchange
building, with its imposing white Ionic columns.

Traditionally, Burmese have stashed their wealth in gold and jewellery. The wealthiest, like
Serge Pun, have headed to Singapore to list their companies. The country's two-digit lottery
is wildly popular with speculators. But most people in Yangon's streets respond with puzzled
looks when asked about the stock market.

Thet Htun Oo of YSE said his staff are touring the country and using social media to urge
would-be investors to "do their homework" and invest for long-term gains.
 THE FUTURE OUTLOOK
Myanmar is drafting legislation to allow foreign investors into the market and to permit
continuous trading, rather than the current two daily auctions. A fourth listing, the First
Private Bank, is scheduled before the year's end, and Thet Htun Oo said he anticipates five
newcomers on the board during each of the next five years. As the market grows,
institutional investors, who so far have kept away, are expected to step in.

The hope is that Yangon's bourse will emulate Vietnam's highly successful stock markets,
rather than the lacklustre exchanges in Laos and Cambodia. All were launched since 2005.

Having leapfrogged older systems, Myanmar's exchange has the latest technology. Soon,
investors will be able to make trades on their mobile telephones.

"We could grow very fast but we need government regulators to render proper support and
understand the value of capital markets to the country," said Rudi Rolles, managing director
of KBZ in Yangon.

Rolles, a veteran of stock markets in emerging economies, said the government could help,
for example, by offering tax breaks to companies that list shares on the exchange.

He and other market boosters say the exchange should play a central role in raising capital
to help grow the economy.

"The market is in its infancy," Rolles said. "But it will develop in the long run, and it will be
successful."